
For the hot entry-level and first-time home buyer market, calculus-changing materials price increases do a number on gross margins. The math of margin erosion can add up fast as housing activity accelerates over the coming months.
National Association of Home Builders director of Tax and Trade Policy Analysis David Logan has this post-up on building materials price increases, filtering the latest Bureau of Labor Statistics Producer Price Index release.
High-level, Logan sees evidence of building materials prices climbing.

Oriented strand board (OSB) led price increases, up 9.3% since February (not seasonally adjusted), while the indexes for ready-mix concrete (+3.3%), softwood lumber (+2.2%), structural steel (+2.0%), and gypsum products (+1.1%) also moved higher.
Seasonality and supply-demand cyclicality aside, the impact of higher materials prices adds a twist to a plotline that is playing in home builders' favor as they continue to weight their product and community offerings to the low-side of $400,000.
Lower price and lower margins tend to go together with higher pace and volume, which can amplify risk as both materials and labor costs stray from proforma budgets established last Fall. Lower prices and higher volumes also go together with the first-time buyer market, more than two out of five of whome, Zelman & Associates points out here, come as refugees from multi-family rentals.
The latest issue of The Z Report looks at "Where are All the Entry-Level Homebuyers Coming From?," one of an assortment of eight in-depth, evidence-based insight pieces that can support more informed decisions on single and multifamily housing investments. Zelman analysts note:

Upon realizing that nearly one out of every two entry-level homebuyers comes from an apartment, it becomes more obvious why home builders are having tremendous success with an expanded focus on the price point. They need not worry about whether or when the buyer can sell their house. There are no strings attached.
Still, the gains home builders can achieve on the absence of a contingency sale can potentially be offset by losses at the monthly payment level if material expense inflation maps directly into selling prices.
We're seeing builders double-down on operational excellence, construction cycle discipline, elimination of waste in start-to-completion workflows as they try to preserve margins, chip away at cost-per-square-foot direct expense, and still keep average selling prices to where they're within the elastic limits of new home buyers. It's never easy.